Reasonable size for Fed balance sheet is $2trn, Bullard says
The US central bank should create some policy space for the future by allowing its balance sheet to gradually shrink to a normal size, a top official from the Federal Reserve said.
In remarks to Bloomberg TV overnight, from Melbourne, St.Louis Fed president James Bullard said the current size of the balance sheet, at $4.5trn, was bigger than anyone thought it should be.
"If you want to create some policy space for the future and at least have the option of being able to do QE in the future you should start getting the balance sheet down to a reasonable size today".
"It is not a matter of doing something that would create volatility in markets. I think it would be taken in stride," Bullard said.
For Bullard, a "reasonable" size for the balance sheet, which would take several years to reach, would be around $2trn, made up of $1.7bn in cash and a couple of hundred billion in reserves.